Question 1

If the beginning inventory for 2006 is overstated, the effects of this error on cost of goods sold for 2006, net income for 2006, and assets at December 31, 2007, respectively, are

Accepted Answer

If the beginning inventory for 2006 is overstated, it will result in an overstatement of cost of goods sold for 2006 because the calculation for cost of goods sold involves subtracting the beginning inventory from the cost of goods available for sale. This will also result in an understatement of net income for 2006 because cost of goods sold is subtracted from revenue to calculate net income. However, there will be no effect on assets at December 31, 2007 because the error only affects the 2006 financial statements.

Question 2

Valuation of inventories requires the deter?mination of all of the following except

Accepted Answer

The valuation of inventories requires determining the costs to be included in inventory, the physical goods to be included, and the cost flow assumption to be adopted. Consignment goods are not part of the company's inventory as they belong to another company until sold.

Question 3

Eller Co.received merchandise on consignment.As of January 31, Eller included the goods in inventory, but did not record the transaction.The effect of this on its financial statements for January 31 would be

Accepted Answer

Eller Co. incorrectly included consigned goods in inventory, overstating current assets. Since the transaction wasn't recorded, net income and retained earnings were also overstated due to the lack of cost recognition.

Question 4

Use the following information for questions 
During 2007 Foley Corporation transferred inventory to Kline Corporation and agreed to repurchase the merchandise early in 2008.Kline then used the inventory as collateral to borrow from Norwalk Bank, remitting the proceeds to Foley.In 2008 when Foley repurchased the inventory, Kline used the proceeds to repay its bank loan.
-This transaction is known as a(n)

Accepted Answer

This transaction is a product financing arrangement because Kline used the inventory as collateral to obtain financing from Norwalk Bank, with the proceeds being remitted to Foley. Foley then repurchased the inventory with the funds received from Kline's repayment of the bank loan.

Question 5

Cross Co.accepted delivery of merchandise which it purchased on account.As of December 31, Cross had recorded the transaction, but did not include the merchandise in its inventory.The effect of this on its financial statements for December 31 would be

Accepted Answer

The merchandise was not included in inventory, leading to understated current assets. Since the cost of goods sold would be overstated, net income and retained earnings would also be understated.

Question 6

The failure to record a purchase of mer?chandise on account even though the goods are properly included in the physical inven?tory results in

Accepted Answer

The answer of The failure to record a purchase of...

Question 7

The accountant for the Orion Sales Company is preparing the income statement for 2007 and the balance sheet at December 31, 2007.Orion uses the periodic inventory system.The January 1, 2007 merchandise inventory balance will appear

Accepted Answer

The January 1, 2007 merchandise inventory balance is used to calculate the cost of goods sold in the income statement for the year. It does not appear on the balance sheet at the end of the year.

Question 8

Costs which are inventoriable include all of the following except

Accepted Answer

Inventoriable costs include all costs that are incurred to purchase, process, and bring goods to a saleable condition. These typically include direct materials, direct labor, and manufacturing overhead. Selling costs, such as those incurred by a sales department, are considered period costs and are not included in inventory costs. They are expensed in the period in which they are incurred.

Question 9

Which of the following is correct?

Accepted Answer

Manufacturing overhead costs are directly related to the production of a product, therefore they are considered product costs. Selling costs and interest costs are not directly related to the production of a product, and are considered period costs.

Question 10

Belle Co.received merchandise on consignment.As of March 31, Belle had recorded the transaction as a purchase and included the goods in inventory.The effect of this on its financial statements for March 31 would be

Accepted Answer

The goods were recorded as a purchase, which means that Belle Co. recognized the cost of the goods as an expense in March. However, since the goods were received on consignment, Belle Co. does not own the goods and should not have included them in inventory. This means that current assets and current liabilities were overstated. The overstatement of expenses would have reduced net income.

Question 11

On June 15, 2007, Tolon Corporation accepted delivery of merchandise which it pur-chased on account.As of June 30, Tolon had not recorded the transaction or included the merchandise in its inventory.The effect of this on its balance sheet for June 30, 2007 would be

Accepted Answer

The answer of On June 15, 2007, Tolon Corporation accepted...

Question 12

Which inventory costing method most closely approximates current cost for each of the following: $\begin{array}{lcc} 
& \text { Ending Inventory } & \text { Cost of Goods Sold } \\hline\end{array}$

Accepted Answer

The answer of Which inventory costing method most closely approximates...

Question 13

When using the periodic inventory system, which of the following generally would not be separately accounted for in the computation of cost of goods sold?

Accepted Answer

Trade discounts applicable to purchases during the period are generally not separately accounted for in the computation of cost of goods sold under the periodic inventory system. This is because trade discounts are deducted from the purchase price before the cost of goods sold is calculated.

Question 14

When using a perpetual inventory system,

Accepted Answer

When using a perpetual inventory system, no Purchases account is used as the inventory is constantly updated with each transaction. Instead, a Cost of Goods Sold account is used to record the cost of goods sold. Two entries are required to record a sale, one to decrease the inventory and one to increase the Cost of Goods Sold account. Therefore, all of the options are correct.

Question 15

Which of the following types of interest cost incurred in connection with the purchase or manufacture of inventory should be capitalized as a product cost?

Accepted Answer

Interest incurred during the production of discrete projects such as ships or real estate projects should be capitalized as a product cost. This is because interest is directly attributable to the cost of completing the project and is necessary to bring the asset to its intended use or saleable condition. However, purchase discounts lost and interest incurred on notes payable to vendors for routine purchases made on a repetitive basis should not be capitalized as they are not directly related to the cost of inventory production or acquisition.

Question 16

The use of a Discounts Lost account implies that the recorded cost of a purchased inventory item is its

Accepted Answer

The use of a Discounts Lost account implies that the recorded cost of a purchased inventory item is its invoice price less the purchase discount allowable whether taken or not. This means that the company is still recording the full invoice price as the cost of the inventory item, even if they were not able to take the discount offered by the supplier. This is a more conservative approach and ensures that the cost of the inventory is not understated.

Question 17

Goods on consignment are

Accepted Answer

Goods on consignment are recorded in a Consignment Out account by the consignor, as they remain the property of the consignor until sold.

Question 18

The use of a Purchase Discounts account implies that the recorded cost of a purchased inventory item is its

Accepted Answer

The answer of The use of a Purchase Discounts account...

Question 19

Use the following information for questions 
During 2007 Foley Corporation transferred inventory to Kline Corporation and agreed to repurchase the merchandise early in 2008.Kline then used the inventory as collateral to borrow from Norwalk Bank, remitting the proceeds to Foley.In 2008 when Foley repurchased the inventory, Kline used the proceeds to repay its bank loan.
-On whose books should the cost of the inventory appear at the December 31, 2007 balance sheet date?

Accepted Answer

The inventory was transferred by Foley Corporation to Kline Corporation, but the agreement was for Foley Corporation to repurchase the inventory in 2008. Therefore, at the December 31, 2007 balance sheet date, the inventory should still be recorded on Foley Corporation's books as it still legally owns the inventory.

Question 20

All of the following costs should be charged against revenue in the period in which costs are incurred except for

Accepted Answer

Costs of normal shrinkage and scrap incurred for the manufacture of a product in ending inventory should be included in the product's cost and charged against revenue when the product is sold, not in the period the costs are incurred.

Quiz 8: Valuation of Inventories: a Cost-Basis Approach

If the beginning inventory for 2006 is overstated, the effects of this error on cost of goods sold for 2006, net income for 2006, and assets at December 31, 2007, respectively, are

Valuation of inventories requires the deter?mination of all of the following except

Eller Co.received merchandise on consignment.As of January 31, Eller included the goods in inventory, but did not record the transaction.The effect of this on its financial statements for January 31 would be

Cross Co.accepted delivery of merchandise which it purchased on account.As of December 31, Cross had recorded the transaction, but did not include the merchandise in its inventory.The effect of this on its financial statements for December 31 would be

The failure to record a purchase of mer?chandise on account even though the goods are properly included in the physical inven?tory results in

The accountant for the Orion Sales Company is preparing the income statement for 2007 and the balance sheet at December 31, 2007.Orion uses the periodic inventory system.The January 1, 2007 merchandise inventory balance will appear

Costs which are inventoriable include all of the following except

Which of the following is correct?

Belle Co.received merchandise on consignment.As of March 31, Belle had recorded the transaction as a purchase and included the goods in inventory.The effect of this on its financial statements for March 31 would be

On June 15, 2007, Tolon Corporation accepted delivery of merchandise which it pur-chased on account.As of June 30, Tolon had not recorded the transaction or included the merchandise in its inventory.The effect of this on its balance sheet for June 30, 2007 would be

Which inventory costing method most closely approximates current cost for each of the following: $\begin{array}{lcc} & \text { Ending Inventory } & \text { Cost of Goods Sold } \\\hline\end{array}$

When using the periodic inventory system, which of the following generally would not be separately accounted for in the computation of cost of goods sold?

When using a perpetual inventory system,

Which of the following types of interest cost incurred in connection with the purchase or manufacture of inventory should be capitalized as a product cost?

The use of a Discounts Lost account implies that the recorded cost of a purchased inventory item is its

Goods on consignment are

The use of a Purchase Discounts account implies that the recorded cost of a purchased inventory item is its

All of the following costs should be charged against revenue in the period in which costs are incurred except for

Quiz 8: Valuation of Inventories: a Cost-Basis Approach

If the beginning inventory for 2006 is overstated, the effects of this error on cost of goods sold for 2006, net income for 2006, and assets at December 31, 2007, respectively, are

Valuation of inventories requires the deter?mination of all of the following except

Eller Co.received merchandise on consignment.As of January 31, Eller included the goods in inventory, but did not record the transaction.The effect of this on its financial statements for January 31 would be

Cross Co.accepted delivery of merchandise which it purchased on account.As of December 31, Cross had recorded the transaction, but did not include the merchandise in its inventory.The effect of this on its financial statements for December 31 would be

The failure to record a purchase of mer?chandise on account even though the goods are properly included in the physical inven?tory results in

The accountant for the Orion Sales Company is preparing the income statement for 2007 and the balance sheet at December 31, 2007.Orion uses the periodic inventory system.The January 1, 2007 merchandise inventory balance will appear

Costs which are inventoriable include all of the following except

Which of the following is correct?

Belle Co.received merchandise on consignment.As of March 31, Belle had recorded the transaction as a purchase and included the goods in inventory.The effect of this on its financial statements for March 31 would be

On June 15, 2007, Tolon Corporation accepted delivery of merchandise which it pur-chased on account.As of June 30, Tolon had not recorded the transaction or included the merchandise in its inventory.The effect of this on its balance sheet for June 30, 2007 would be

Which inventory costing method most closely approximates current cost for each of the following: Ending Inventory Cost of Goods Sold \begin{array}{lcc} & \text { Ending Inventory } & \text { Cost of Goods Sold } \\\hline\end{array}​ Ending Inventory ​ Cost of Goods Sold ​​

When using the periodic inventory system, which of the following generally would not be separately accounted for in the computation of cost of goods sold?

When using a perpetual inventory system,

Which of the following types of interest cost incurred in connection with the purchase or manufacture of inventory should be capitalized as a product cost?

The use of a Discounts Lost account implies that the recorded cost of a purchased inventory item is its

Goods on consignment are

The use of a Purchase Discounts account implies that the recorded cost of a purchased inventory item is its

All of the following costs should be charged against revenue in the period in which costs are incurred except for

Which inventory costing method most closely approximates current cost for each of the following: $\begin{array}{lcc} & \text { Ending Inventory } & \text { Cost of Goods Sold } \\\hline\end{array}$